UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                  FORM 10 - KSB

[X]      Annual  Report  Pursuant  to  Section  13 or 15 (d)  of the  Securities
         Exchange Act of 1934 for the fiscal year ended June 30, 2008

[_]      Transition  Report  Pursuant to Section 13 or 15 (d) of the  Securities
         Exchange Act of 1934. For the transition period from to

                           Commission File No. 1-4383

                         ESPEY MFG. & ELECTRONICS CORP.
                         ------------------------------
             (Exact name of registrant as specified in its charter)

           NEW YORK                                             14-1387171
           --------                                             ----------
(State or other jurisdiction of                               (IRS Employer
 incorporation or organization)                             Identification No.)

                 233 Ballston Avenue, Saratoga Springs, NY 12866
                 -----------------------------------------------
           (Address of principal executive offices including Zip Code)

        (Registrant's telephone number including area code) (518)245-4400
                                                            -------------

                                                  Name of Each Exchange
           Title of Each class                    on Which Registered
           -------------------                    -------------------
      Common Stock $.33-1/3 par value             American Stock Exchange
      Common Stock Purchase Rights                American Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to the filed by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during  the  preceding  12  months,  and (2) has  been  subject  to such  filing
requirements for the past 90 days.
         [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.
         [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
         [ ] Yes [X] No

Revenues for fiscal year ended June 30, 2008 were $25,701,739

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  was  $27,908,407  based upon the closing sale price of $18.99 on the
American Stock Exchange on June 30, 2008.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

              Class                            Outstanding at September 8, 2008
             -------                           --------------------------------
Common stock, $.33-1/3 par value                         2,328,902 shares

                                       1
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  proxy statement  relating to the 2008
Annual  Meeting of  Shareholders,  to be filed with the  Securities and Exchange
Commission,  are  incorporated  by reference in Part III, Items 10 through 14 on
Form 10-KSB as indicated herein.

Introductory Statement

In accordance with SEC Release No.  33-8876,  the registrant is eligible to file
the  within  Annual  Report on Form  10-KSB  because  it  qualified  as a "small
business  issuer" on the effective  date of the amendments  adopted  pursuant to
said Release.

Forward-Looking Statements

This Annual Report on Form 10-KSB contains  forward-looking  statements that are
based on management's  expectations,  estimates,  projections  and  assumptions.
Words  such  as  "expects,"  "anticipates,"  "plans,"  "believes,"  "scheduled,"
"estimates"  and variations of these words and similar  expressions are intended
to identify  forward-looking  statements.  Forward-looking  statements  are made
pursuant to the safe harbor  provisions  of the  Private  Securities  Litigation
Reform Act of 1995, as amended.  These  statements  are not guarantees of future
performance  and involve certain risks and  uncertainties  that are difficult to
predict.  Therefore, actual future results and trends may differ materially from
what is  forecast  in  forward-looking  statements  due to a variety of factors,
including, without limitation:

   o  Changing priorities in the U.S. government's defense budget (including
      changes in  priorities  in  response  to  terrorist  threats or to improve
      homeland security);
   o  Termination of government contracts due to unilateral government action;
   o  Differences in anticipated and actual program  performance,  including the
      ability to perform under long-term  fixed-price contracts within estimated
      costs, and performance issues with key suppliers and subcontractors;
   o  Potential of changing prices for energy and raw materials.

All  forward-looking  statements speak only as of the date of this report or, in
the case of any document  incorporated by reference,  the date of that document.
All subsequent written and oral forward-looking  statements  attributable to the
Company or any  person  acting on the  Company's  behalf  are  qualified  by the
cautionary  statements  in this  section.  The Company  does not  undertake  any
obligation  to update or  publicly  release  any  revisions  to  forward-looking
statements to reflect events, circumstances or changes in expectations after the
date of this report.

                                       2
<PAGE>

                                     PART I

Item 1.  Description of Business

General

Espey Mfg. & Electronics Corp. (the "Company") located in Saratoga Springs,  New
York, is engaged principally in the development,  design, production and sale of
specialized  electronic power supplies, a wide variety of transformers and other
types of iron-core components,  and electronic system components. In some cases,
the  Company   manufactures  such  products  in  accordance  with  pre-developed
mechanical and electrical  requirements  ("build to print"). In other cases, the
Company  is  responsible  for both the  overall  design and  manufacture  of the
product. The Company does not generally manufacture standardized components. The
Company operates a one-segment business and was incorporated in 1928.

The electronic  power supplies and components  manufactured  by the Company find
application principally in (i) shipboard and land based radar, (ii) locomotives,
(iii)  aircraft,   (iv)  short  and  medium  range  communication  systems,  (v)
navigation systems and (vi) land based military vehicles.

The Company's iron-core  components include (i) transformers of the audio, power
and  pulse  types,  (ii)  magnetic  amplifiers  and  (iii)  audio  filters.  The
electronic system components manufactured by the Company include antenna systems
and high power radar transmitters. These system components utilize the Company's
own electronic power supplies,  transformers and other iron-core  components and
mechanical assemblies.

In the fiscal years ended June 30, 2008 and 2007, the Company's total sales were
$25,701,739 and $27,656,359,  respectively. Sales to two customers accounted for
31% and 25% of total sales in 2008. Sales to two customers accounted for 30% and
29% of total sales in 2007.

Export  sales in 2008 and 2007 were  approximately  $5,538,000  and  $3,747,000,
respectively.

Sources of Raw Materials

The Company has never experienced any significant delay or shortage with respect
to the purchase of raw materials and components  used in the  manufacture of its
products, and has at least two potential sources of supply for a majority of its
raw materials.  However,  certain  components used in our products are available
from only a limited number of sources,  and other  components are only available
from a single source.  Despite the risk associated with limited or single source
suppliers, the benefits of higher quality goods and timely delivery minimize and
often limit any  potential  risk and can  eliminate  problems with part failures
during production.

Sales Backlog

At September 8, 2008, the Company's backlog was  approximately $46 million.  The
total  backlog at June 30,  2008 was  approximately  $44.8  million  compared to
approximately  $36.3  million at June 30,  2007.  The  Company's  total  backlog
represents  the estimated  remaining  sales value of work to be performed  under
firm  contracts.  The Company's  backlog and risks  associated  with  government
contracts is discussed in greater detail in Management's Discussion and Analysis
of Financial Condition and Results of Operations, contained in Item 7 below.

It is presently anticipated that a minimum of $27.7 million of orders comprising
the June 30, 2008 backlog will be filled  during the fiscal year ending June 30,
2009. The minimum of $27.7 million does not include any shipments,  which may be
made against orders subsequently received during the fiscal year ending June 30,
2009.  The estimate of the June 30, 2008 backlog to be shipped in fiscal 2009 is
subject to future  events,  which may cause the amount of the  backlog  actually
shipped to differ from such estimate.

Marketing and Competition

The  Company  markets  its  products  primarily  through  its own  direct  sales
organization.  Business is solicited  from large  industrial  manufacturers  and
defense companies,  the government of the United States and foreign  governments
and major  foreign  electronic  equipment  companies.  In certain  countries the
Company has  external  sales  representatives  to help  solicit  and  coordinate
foreign  contracts.  The Company is also on the eligible list of  contractors of
many  agencies  of the United  States  Department  of Defense and  generally  is
automatically  solicited by such agencies for  procurement  needs falling within
the major classes of products produced by the Company.

                                       3
<PAGE>

There is  competition  in all classes of products  manufactured  by the Company,
including from divisions of the largest  electronic  companies,  as well as many
small companies. The Company's sales do not represent a significant share of the
industry's  market  for any class of its  products.  The  principal  methods  of
competition  for electronic  products of both a military and  industrial  nature
include, among other factors, price, product performance,  the experience of the
particular company and history of its dealings in such products. The Company, as
well as other  companies  engaged in supplying  equipment  for military  use, is
subject to various risks, including, without limitation,  dependence on U.S. and
foreign government  appropriations and program allocations,  the competition for
available   military  business,   and  government   termination  of  orders  for
convenience.

The  Company's  business is not  considered  to be  seasonal.  Also,  management
believes that due to the nature of the  Company's  business the Company will not
be adversely affected by recessionary factors in the U.S. economy generally.

Research and Development

The  Company's  expenditures  for research and  development  were  approximately
$53,586 and $79,836 in fiscal 2008 and 2007, respectively. Some of the Company's
engineers and technicians spend varying degrees of time on either development of
new products or improvements of existing products.

Employees

The Company had 167 employees as of September 8, 2008.  Some of these  employees
are  represented by the  International  Brotherhood of Electrical  Workers Local
#1799.  A new  collective  bargaining  agreement was approved in June 2008.  The
four-year  agreement  expires  on June  30,  2012.  The  contract  includes  pay
increases  of 4%,  3.75%,  3.75%  and 4% for  each  year,  respectively,  of the
four-year  contract.  Relations  with  the  Union  are  considered  good.  Union
membership at September 8, 2008 was 66 people.

Government Regulations

Compliance  with federal,  state and local  provisions that have been enacted or
adopted  to  regulate  the  discharge  of  materials  into the  environment,  or
otherwise relating to the protection of the environment,  did not in fiscal year
2008,  and the Company  believes  will not in fiscal year 2009,  have a material
effect upon the capital expenditures, net income, or competitive position of the
Company.

The Company's  U.S.  government  contract and  subcontract  orders are funded by
government  budgets,  which operate on an  October-to-September  fiscal year. In
February of each year, the President of the United States presents to Congress a
proposed budget for the upcoming  fiscal year. This budget includes  recommended
appropriations  for every  federal  agency and is the result of months of policy
and program  reviews  throughout  the executive  branch.  From February  through
September of each year,  the  appropriations  and  authorization  committees  of
Congress  review the  President's  budget  proposals  and  establish the funding
levels  for  the  upcoming  fiscal  year  in  appropriations  and  authorization
legislation. Once these levels are enacted into law, the Executive Office of the
President administers the funds to the agencies.

There are two primary risks associated with this process. First, the process may
be delayed or disrupted  because of congressional  schedules,  negotiations over
funding levels for programs or unforeseen  world events,  which could,  in turn,
alter the  funding for a program or  contract.  Second,  funding for  multi-year
contracts can be changed by future appropriations, which could affect the timing
of funds, schedules and program content.

Also,  our  international  sales  are  denominated  in United  States  currency.
Consequently, changes in exchange rates that strengthen the United States dollar
could increase the price in local  currencies of our products in foreign markets
and make our products relatively more expensive than competitors' products.

U.S. Government Defense Contracts and Subcontracts

Generally,  U.S.  government  contracts  are  subject  to  procurement  laws and
regulations.  Some  of the  Company's  contracts  are  governed  by the  Federal
Acquisition Regulation (FAR), which lays out uniform policies and procedures for
acquiring  goods  and  services  by the  U.S.  government,  and  agency-specific
acquisition  regulations that implement or supplement the FAR. For example,  the
Department of Defense implements the FAR through the Defense Federal Acquisition
Regulation (DFAR).

                                       4
<PAGE>

The FAR also contains  guidelines and  regulations for managing a contract after
award, including conditions under which contracts may be terminated, in whole or
in part,  at the  government's  convenience  or for  default.  If a contract  is
terminated for the  convenience of the  government,  a contractor is entitled to
receive  payments for its  allowable  costs and, in general,  the  proportionate
share of fees or earnings  for the work done.  If a contract is  terminated  for
default, the government generally pays for only the work it has accepted.  These
regulations  also subject the company to financial  audits and other  reviews by
the  government  of its costs,  performance,  accounting  and  general  business
practices  relating  to its  contracts,  which may result in  adjustment  of the
company's contract-related costs and fees.

Item 2.  Description of Property

The Company's  manufacturing and engineering  facilities are located in Saratoga
Springs, New York.

The  Saratoga  Springs  plant,  which the  Company  owns,  consists  of  various
adjoining  one-story  buildings on a 22 acre site,  approximately eight acres of
which is unimproved. The property is not subject to mortgage indebtedness or any
other  material  encumbrance.  The plant has a sprinkler  system  throughout and
contains  approximately  151,000 square feet of floor space,  of which 90,000 is
used  for  manufacturing,  24,000  for  engineering,  33,000  for  shipping  and
climatically secured storage,  and 4,000 for offices.  The offices,  engineering
and some manufacturing  areas are  air-conditioned.  In addition to assembly and
wiring  operations,  the plant  includes  facilities  for  varnishing,  potting,
plating, impregnation and spray-painting operations. The manufacturing operation
also includes a complete machine shop, with welding and sheet metal  fabrication
facilities  adequate for substantially all of the Company's current  operations.
Besides normal test equipment,  the Company  maintains a  sophisticated  on-site
environmental  test  facility.  In  addition  to  meeting  all of the  Company's
in-house  needs,  the plating,  machine shop and  environmental  facilities  are
available to other companies on a contract basis.

Item 3.  Legal Proceedings

         None

Item 4.  Submission of Matters to a Vote of Security Holders

         None


                                       5
<PAGE>

                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

Price Range of Common Stock

The table below shows the range of high and low prices for the Company's  common
stock on the American Stock Exchange (ticker symbol "ESP"), the principal market
for  trading in the common  stock,  for each  quarterly  period for the last two
fiscal years ended June 30:

         2008                                   High            Low
         First Quarter                         24.08           19.71
         Second Quarter                        24.00           17.60
         Third Quarter                         23.75           14.75
         Fourth Quarter                        23.20           17.40

         2007                                   High            Low
         First Quarter                         18.30           16.10
         Second Quarter                        19.05           16.65
         Third Quarter                         19.91           16.85
         Fourth Quarter                        24.30           19.61

Holders

The  approximate  number of  holders  of record of the  common  stock was 110 on
September 8, 2008 according to records of the Company's transfer agent. Included
in this number are shares held in "nominee" or "street" name and, therefore, the
number of beneficial  owners of the common stock is believed to be substantially
in excess of the foregoing number.

Dividends

The Company paid cash  dividends on common stock of $2.25 and $.56 per share for
the fiscal years ended June 30, 2008 and 2007, respectively.  The dividends paid
during the fiscal year ended June 30, 2008 included a special  dividend of $1.50
per share that was paid on March 20, 2008. The Board of Directors has authorized
the payment of a fiscal 2009 first quarter  dividend of $.225 payable  September
25, 2008 to shareholders of record on September 4, 2008.

During  fiscal  2008,  the Company sold common  stock to certain  employees  and
directors as they exercised  existing stock options  granted under a shareholder
approved  plan.  During the year,  45,100 shares were sold at prices that ranged
from  $6.63 a share to  $17.80 a  share.  The  securities  were  sold for  cash.
Proceeds are used for general working capital purposes.

The Company made open market  purchases of equity  securities in the fiscal 2008
fourth quarter totaling 2,871 shares for $53,080.

<TABLE>
<CAPTION>
                                  Small Business Issuer Purchases of Equity Securities

                                                                            Total Number of        Maximum Dollar
                                                                          Shares Purchased as   Value of Shares that
                                                                           Part of Publicly          May Yet Be
                             Total Number of       Average Price Paid     Announced Plans or     Purchased Under the
         Period             Shares Purchased           per Share               Programs           Plans or Programs
----------------------------------------------------------------------------------------------------------------------
                                   (a)                    (b)                    (c)                      (d)
----------------------------------------------------------------------------------------------------------------------
<S>                               <C>                    <C>                     <C>                   <C>
   April 1 - April 30               -                      -                       -                 $ 1,283,637
     May 1 - May 31                 -                      -                       -                   1,283,637
    June 1 - June 30              2,871                  $18.49                  2,871                 1,230,557
                                  -----                  ------                  -----               -----------
         Total                    2,871                  $18.49                  2,871               $ 1,230,557
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       6
<PAGE>

The following  table sets forth  information as of June 30, 2008 with respect to
compensation plans under which equity securities of the Company may be issued.

<TABLE>
<CAPTION>
                                            Equity Compensation Plan Information


                           Number of securities to      Weighted-average             Number of Securities remaining
                           be issued upon exercise      exercise price of         available for future issuance under
                           of outstanding options,    outstanding options,        equity compensation plan (excluding
Plan Category                warrants and rights       warrants and rights         securities reflected in column (a))
----------------------------------------------------------------------------------------------------------------------
                                     (a)                       (b)                                 (c)
----------------------------------------------------------------------------------------------------------------------
<S>                                <C>                       <C>                                <C>
Equity compensation
   plans approved by
   security holders                126,500                   $18.40                             365,600
Equity compensation
   plans not approved
   by security holders
                                 ---------                                                    ---------
           Total                   126,500                                                      365,600
----------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       7
<PAGE>

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Business Outlook

The business outlook for the Company is excellent.  The order backlog,  together
with potential new orders realized from  outstanding  quotations by the Company,
remain at a high level.  Expectations  are for product mix and margins to remain
favorable for fiscal year 2009, and management  expects  revenues to increase in
fiscal year 2009 over fiscal year 2008.  During fiscal 2008 new orders  received
by the Company were approximately  $34.3 million.  The near record order backlog
of  approximately  $44.8 million at June 30, 2008 gives the Company a solid base
of future sales. It is presently  anticipated that a minimum of $27.7 million of
orders  comprising  the June 30, 2008 backlog  will be filled  during the fiscal
year ending June 30,  2009.  The minimum of $27.7  million  does not include any
shipments,  which may be made against orders  subsequently  received  during the
fiscal year ending June 30, 2009. The backlog represents the estimated remaining
sales value of work to be performed under firm contracts.

In addition to the backlog,  the Company  currently has  outstanding  quotations
representing in excess of $33.2 million in the aggregate for both repeat and new
programs.  Many potential  orders are currently  being  discussed and negotiated
with existing and potential new customers.  The outstanding quotations encompass
various  new and  previously  manufactured  power  supplies,  transformers,  and
subassemblies.  However, there can be no assurance that the Company will acquire
any or all of the anticipated  orders described above, many of which are subject
to allocations of the United States defense  spending and factors  affecting the
defense industry and military procurement generally.

Two significant  customers in fiscal 2008 represented 56% of the Company's total
sales.  These  sales  represent  significant  programs  which the  Company  is a
significant  supplier of parts.  While the Company has always had a small number
of  customers  that make up its total  sales in any given  year,  management  is
pursuing business opportunities  involving significant product programs with new
and current customers with an objective of lowering the overall concentration of
sales, and minimizing the impact of loss of a significant  customer or excessive
reliance upon a single major product program of a particular customer.

Management  continues to invest in capital  equipment to upgrade its  technology
and stay  current with the  industry.  Capital  expenditures  are expected to be
approximately  $350,000  for  fiscal  2009.  Also,  management  along  with  the
Company's Board of Directors  continues to look for potential  opportunities  to
expand the Company's business through acquisitions.

Results of Operations

Net Sales for fiscal years ended June 30, 2008 and 2007,  were  $25,701,739  and
$27,656,359,  respectively,  a 7.1% decrease. This decrease can be attributed to
the contract specific nature of the Company's business and the delivery dates on
these  contracts.  Also, one significant  customer  program  experienced  vendor
delivery delays for material needed to produce power supplies. This delay slowed
production efforts and helped cause a decrease in sales for the year. New orders
received in fiscal 2008 were approximately  $34.3 million,  representing a 30.6%
increase  over the amount of new orders  received in fiscal  2007.  As discussed
above,  the order backlog at June 30, 2008 was $44.8  million  compared to $36.3
million at June 30, 2007.

For the fiscal years ended June 30, 2008 and 2007 gross profits were  $6,862,246
and  $6,059,967,  respectively.  Gross profit as a percentage of sales was 26.7%
and  21.9%,  for  fiscal  2008 and 2007,  respectively.  The  primary  factor in
determining  gross profit and net income is product  mix.  The gross  profits on
mature  products and build to print contracts are higher as compared to products
which are still in the engineering  development  stage or in the early stages of
production.  In any given accounting period the mix of product shipments between
higher margin mature programs and less mature programs including loss contracts,
has a  significant  impact on gross profit and net income.  The  improved  gross
profit and gross  profit  percentage  was the  result of  shipping  more  mature
products with  favorable  margins  during fiscal 2008.  Management  continues to
evaluate the Company's workforce to ensure that production and overall execution
of the  backlog  orders  and  additional  anticipated  orders  are  successfully
obtained and executed.  Employment of full time equivalents at June 30, 2008 was
170 compared to 179 people at June 30, 2007.

Selling, general and administrative expenses were $2,623,313 for the fiscal year
ended June 30, 2008,  a decrease of  $208,052,  or 7.3% as compared to the prior
year. This decrease is primarily due to reduced headcount.

Other  income for the fiscal years ended June 30, 2008 and 2007 was $712,252 and
$677,888,  respectively,  a 5.1%  increase.  This  increase is due to  increased
interest  income  on the  Company's  cash and cash  equivalents  and  short-term
investments  due to higher cash and cash  equivalent and  short-term  investment
balances for a majority of the

                                       8
<PAGE>

year as well as an increase in scrap metal income offset by lower interest rates
on the  Company's  investments.  The  Company  does not  believe  that  there is
significant risk associated with its investment  policy,  since at June 30, 2008
all  of  the  investments  were  primarily   represented  by  short-term  liquid
investments including certificates of deposit and money market accounts.

The effective income tax rate was 30.9% in fiscal 2008 and 34.9% in fiscal 2007.
The  effective  tax rate was impacted in fiscal 2008 mainly due to the qualified
production activities benefit,  ESOP dividend payment deduction,  offset by ESOP
differences  between book expense and tax expense for currently allocated shares
and state taxes.

Net income for fiscal 2008, was  $3,421,869 or $1.65 and $1.63 per share,  basic
and diluted,  respectively,  compared to net income of  $2,544,720  or $1.24 and
$1.23 per share, basic and diluted,  respectively, for fiscal 2007. The increase
in net  income  per share  was due to the  decrease  in both,  cost of sales and
selling, general and administrative  expenses,  offset partially by the decrease
in sales.

Liquidity and Capital Resources

The Company's  working  capital is an appropriate  indicator of the liquidity of
its business,  and during the past two fiscal years,  the Company has funded all
of its operations with cash flows  resulting from operating  activities and when
necessary from its existing cash and investments. The Company did not borrow any
funds during the last three fiscal years.  Management had available a $3,000,000
line of credit to help fund further growth or working capital needs, but did not
anticipate  the  need  for any  borrowed  funds in the  foreseeable  future  and
therefore did not renew the line of credit which expired November 30, 2007.

The Company's  working  capital as of June 30, 2008 and 2007 was $27,448,722 and
$28,301,566,  respectively.  During 2008 and 2007 the Company repurchased 36,091
and 16,269 shares, respectively, of its common stock from the Company's Employee
Retirement Plan and Trust ("ESOP") and in other open market transactions,  for a
total  purchase  price of $769,443 and $298,064  respectively.  At the Company's
Board of  Directors  meeting  held on August  15,  2008 the  Board of  Directors
increased  management's  authorization  to purchase an  additional $2 million of
Company stock.

The table below  presents  the summary of cash flow  information  for the fiscal
year indicated:

                                                        2008           2007
                                                        ----           ----
Net cash provided by operating activities.........  $ 4,147,247    $ 6,075,626
Net cash used in investing activities.............   (3,598,961)      (948,993)
Net cash used in financing activities ............   (4,792,644)    (1,103,137)

Net cash provided by operating  activities  fluctuates between periods primarily
as a result of  differences  in net  income,  the  timing of the  collection  of
accounts receivable,  purchase of inventory, receipt of progress payments, level
of sales and payments of accounts payable. Net cash used in investing activities
increased  in fiscal 2008 due to the  purchase of  short-term  investments.  The
increase in cash used in financing  activities  is due primarily to the purchase
of treasury shares and an increase in dividends paid on common stock,  including
a special dividend of $1.50 per share that was paid in March 2008.

The Company believes that the cash generated from operations and when necessary,
from  existing  cash  and  cash  equivalents,  will be  sufficient  to meet  its
long-term funding requirements for the foreseeable future.

Management  believes  that the  Company's  reserve  for bad  debts of  $3,000 is
adequate given the customers with whom the Company does business.  Historically,
bad debt expense has been minimal.

During  fiscal year 2008 and fiscal  2007,  the Company  expended  $517,959  and
$565,003,  respectively,  for plant improvements and new equipment.  The Company
has budgeted  approximately $350,000 for new equipment and plant improvements in
fiscal 2009.  Management  anticipates  that the funds required will be available
from current operations.

Critical Accounting Policies and Estimates

Our  significant  accounting  policies are  described in note 2 to the financial
statements.  We believe our most critical  accounting  policies  include revenue
recognition and cost estimation on our contracts.

                                       9
<PAGE>

Revenue Recognition and Estimates

A significant portion of our business is comprised of development and production
contracts. Generally revenues on long-term fixed-price contracts are recorded on
a  percentage  of  completion  basis using units of delivery as the  measurement
basis for progress toward completion.

Percentage  of  completion  accounting  requires  judgment  relative to expected
sales,  estimating costs and making assumptions  related to technical issues and
delivery  schedules.  Contract costs include material,  subcontract costs, labor
and an allocation of overhead  costs.  The estimation of cost at completion of a
contract is subject to numerous variables involving contract costs and estimates
as to the length of time to complete the contract. Given the significance of the
estimation  processes  and  judgments  described  above,  it  is  possible  that
materially  different  amounts of contract  costs could be recorded if different
assumptions were used, based on changes in  circumstances,  in the estimation of
cost at  completion.  When a change in expected sales value or estimated cost is
determined, changes are reflected in current period earnings.


Item 7.  Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Espey Mfg. & Electronics Corp.
Saratoga Springs, New York

         We have  audited  the  accompanying  balance  sheet  of  Espey  Mfg.  &
Electronics  Corp.  as of June 30, 2008,  and the related  statements of income,
stockholders'  equity,  and cash  flows  for each of the  years in the  two-year
period ended June 30,  2008.  Espey Mfg. &  Electronics  Corp.'s  management  is
responsible for these financial statements.  Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  financial  position  of Espey  Mfg. &
Electronics Corp. as of June 30, 2008, and the results of its operations and its
cash flows for each of the years in the  two-year  period ended June 30, 2008 in
conformity with accounting principles generally accepted in the United States of
America.


/s/ Rotenberg & Co., LLP
------------------------
Rochester, New York
September 8, 2008


                                       10
<PAGE>
<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp.
Balance Sheet
June 30, 2008
-------------------------------------------------------------------------------------
<S>                                                                         <C>
ASSETS
     Cash and cash equivalents .......................................   $  6,851,753
     Short term investments ..........................................      7,336,000
     Trade accounts receivable, net ..................................      3,646,127
     Income tax receivable ...........................................        276,087
     ESOP receivable due to dividends on unallocated shares ..........         36,809
     Other receivables ...............................................          4,348

     Inventories:
              Raw materials and supplies .............................      1,575,116
              Work-in-process ........................................      1,151,332
              Costs related to contracts in process, net of progress
                payments of $959,175 .................................      7,461,786
                                                                         ------------
                           Total inventories .........................     10,188,234

     Deferred income taxes ...........................................        169,853
     Prepaid expenses and other current assets .......................        355,688
                                                                         ------------
                           Total current assets ......................     28,864,899
                                                                         ------------
     Property, plant and equipment, net ..............................      2,956,590
     Loan receivable .................................................         65,003
                                                                         ------------

                           Total assets ..............................   $ 31,886,492
                                                                         ============

LIABILITIES AND STOCKHOLDERS' EQUITY

     Accounts payable ................................................   $    600,931
     Accrued expenses:
              Salaries, wages and commissions ........................        184,377
              Vacation ...............................................        542,441
              Other ..................................................         46,253
     Payroll and other taxes withheld and accrued ....................         42,175
     Income taxes payable ............................................             --
                                                                         ------------
                           Total current liabilities .................      1,416,177
                                                                         ------------
     Deferred income taxes ...........................................        132,578
                                                                         ------------
                           Total liabilities .........................      1,548,755
                                                                         ------------

     Common stock, par value $.33-1/3 per share
              Authorized 10,000,000 shares; Issued 3,029,874 shares in
                   2008. Outstanding 2,325,902 (includes 225,000
                   Unearned ESOP Shares) .............................      1,009,958
     Capital in excess of par value ..................................     13,476,609
     Retained earnings ...............................................     25,796,703
                                                                         ------------
                                                                           40,283,270

     Less:    Unearned ESOP shares ...................................     (3,251,248)
              Cost of 703,972 shares of common stock in treasury .....     (6,694,285)
                                                                         ------------
                           Total stockholders' equity ................     30,337,737
                                                                         ------------

                           Total liabilities and stockholders' equity    $ 31,886,492
                                                                         ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

                                       11
<PAGE>

Espey Mfg. & Electronics Corp.
Statements of Income
Years Ended June 30, 2008 and 2007
--------------------------------------------------------------------------------

                                                     2008          2007
                                                     ----          ----
Net sales ....................................   $25,701,739   $27,656,359
Cost of sales ................................    18,839,493    21,596,392
                                                 -----------   -----------
         Gross profit ........................     6,862,246     6,059,967

Selling, general and administrative expenses .     2,623,313     2,831,365
                                                 -----------   -----------
         Operating income ....................     4,238,933     3,228,602

Other income (expense)
         Interest and dividend income ........       640,412       614,229
         Other ...............................        71,840        63,659
                                                 -----------   -----------
                Total other income, net ......       712,252       677,888
                                                 -----------   -----------

Income before income taxes ...................     4,951,185     3,906,490

Provision for income taxes ...................     1,529,316     1,361,770
                                                 -----------   -----------

                           Net income ........   $ 3,421,869   $ 2,544,720
                                                 ===========   ===========

Net income per share:
         Basic ...............................   $      1.65   $      1.24
         Diluted .............................   $      1.63   $      1.23
                                                 -----------   -----------

Weighted average number of shares outstanding:
         Basic ...............................     2,079,734     2,048,626
         Diluted .............................     2,103,836     2,077,664
                                                 ===========   ===========

The accompanying notes are an integral part of the financial statements.

                                       12
<PAGE>
<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp.
Statements of Changes in Stockholders' Equity
Years Ended June 30, 2008 and 2007
-----------------------------------------------------------------------------------------------------------------

                                         Outstanding                   Capital in      Unearned
                                           Common                      Excess of         ESOP          Retained
                                           Shares         Amount       Par Value        Shares         Earnings
                                        ------------   ------------   ------------   ------------    ------------
Balance as of June 30, 2006                2,304,562   $  1,009,958   $ 12,506,749   $(3,961,079)    $ 25,651,945
                                        ------------   ------------   ------------   ------------    ------------
<S>                                       <C>           <C>           <C>            <C>             <C>

Net income, 2007                                                                                        2,544,720

Stock options exercised                       28,600                        51,620

Stock option expense                                                       170,698

Dividends paid on common stock
   $.56 per share                                                                                      (1,142,340)

Tax effect of stock options exercised                                       49,697

Purchase of treasury stock                   (16,269)

Reduction of unearned ESOP shares                                          111,505        360,620
                                        ------------   ------------   ------------   ------------    ------------

Balance as of June 30, 2007                2,316,893     $1,009,958    $12,890,269    $(3,600,459)    $27,054,325
                                        ------------   ------------   ------------   ------------    ------------

Net income, 2008                                                                                        3,421,869

Stock options exercised                       45,100                       200,744

Stock option expense                                                       143,530

Dividends paid on common stock
   $2.25 per share                                                                                     (4,679,491)

Tax effect of stock options exercised                                       83,471

Purchase of treasury stock                   (36,091)

Reduction of unearned ESOP shares                                          158,595        349,211
                                        ------------   ------------   ------------   ------------    ------------

Balance as of June 30, 2008                2,325,902     $1,009,958    $13,476,609    $(3,251,248)    $25,796,703
                                        ============   ============   ============   ============    ============


The accompanying notes are an integral part of the financial statements.

                                                                                                      (Continued)

                                                         13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                              Treasury Stock               Total
                                        ---------------------------    Stockholders'
                                           Shares         Amount          Equity
                                        ------------   ------------    ------------
<S>                                           <C>          <C>             <C>
Balance as of June 30, 2006                  725,312   $ (6,234,803)   $ 28,972,770
                                        ============   ============    ============

Net income, 2007                                                          2,544,720

Stock options exercised                      (28,600)       235,950         287,570

Stock option expense                                                        170,698

Dividends paid on common stock
   $.56 per share                                                        (1,142,340)

Tax effect of stock options exercised                                        49,697

Purchase of treasury stock                    16,269       (298,064)       (298,064)

Reduction of unearned ESOP shares                                           472,125
                                        ------------   ------------    ------------

Balance as of June 30, 2007                  712,981   $ (6,296,917)   $ 31,057,176
                                        ------------   ------------    ------------

Net income, 2008                                                          3,421,869

Stock options exercised                      (45,100)       372,075         572,819

Stock option expense                                                        143,530

Dividends paid on common stock                                           (4,679,491)
   $2.25 per share

Tax effect of stock options exercised                                        83,471

Purchase of treasury stock                    36,091       (769,443)       (769,443)

Reduction of unearned ESOP shares                                           507,806
                                        ------------   ------------    ------------

Balance as of June 30, 2008                  703,972   $ (6,694,285)   $ 30,337,737
                                        ============   ============    ============

The accompanying notes are an integral part of the financial statements.

                                         14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp.
Statements of Cash Flows
Years Ended June 30, 2008 and 2007
------------------------------------------------------------------------------------

                                                              2008           2007
                                                              ----           ----
<S>                                                           <C>            <C>
Cash Flows From Operating Activities:
     Net income .......................................   $ 3,421,869    $ 2,544,720

     Adjustments  to  reconcile  net income to net cash
       provided  by  operating activities:

     Excess tax benefits from share-based compensation         83,471         49,697

     Stock-based compensation .........................       143,530        170,698

     Depreciation .....................................       491,526        504,243

     ESOP compensation expense ........................       507,805        472,125

     Loss on disposal of assets .......................         4,353          8,692

     Deferred income tax benefit ......................       (38,510)       (60,449)

     Changes in assets and liabilities:

          (Increase) decrease in trade receivables, net      (625,646)     1,192,747

          Increase in income tax receivable                  (276,087)            --

          (Increase) decrease in other receivables ....          (900)         3,436

          Increase in ESOP receivable due to dividends
             on unallocated shares ....................       (36,809)            --

          Decrease in inventories, net ................       961,093      1,255,052

          Decrease in prepaid expenses and other
             current assets ...........................       192,524          5,915

          (Decrease) increase in accounts payable .....      (380,020)       365,365

          Increase in accrued salaries,
             wages and commissions ....................        22,175         34,195

          Increase (decrease) in other accrued expenses           200         (5,365)

          (Decrease) increase in vacation accrual .....       (40,040)        37,058

          Increase in payroll and
             other taxes withheld and accrued .........           127          1,469

          Decrease in income taxes payable ............      (283,414)      (503,972)
                                                          -----------    -----------

                      Net cash provided by
                         operating activities .........   $ 4,147,247    $ 6,075,626
                                                          -----------    -----------

The accompanying notes are an integral part of the financial statements.

                                                                         (Continued)

                                           15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                        <C>             <C>
Cash Flows From Investing Activities:

     Additions to property, plant and equipment ......       (517,959)       (565,003)

     Payment for loan receivable .....................        (80,000)             --

     Proceeds from return of loan receivable .........         14,998              --

     Purchase of short term investments ..............     (8,135,000)     (4,896,000)

     Proceeds from maturity of short term investments       5,119,000       4,512,000

     Proceeds on sale of assets, net .................             --              10
                                                         ------------    ------------

                      Net cash used in
                         investing activities ........     (3,598,961)       (948,993)
                                                         ------------    ------------

Cash Flows From Financing Activities:

     Dividends on common stock .......................     (4,679,491)     (1,142,340)

     Purchase of treasury stock ......................       (769,443)       (298,064)

     Proceeds from exercise of stock options .........        572,819         287,570

     Excess tax benefits from share-based compensation         83,471          49,697
                                                         ------------    ------------

                      Net cash used in
                         financing activities ........     (4,792,644)     (1,103,137)
                                                         ------------    ------------

(Decrease) increase in cash and cash equivalents .....     (4,244,358)      4,023,496

Cash and cash equivalents, beginning of the year .....     11,096,111       7,072,615
                                                         ------------    ------------

Cash and cash equivalents, end of the year ...........   $  6,851,753    $ 11,096,111
                                                         ============    ============

Supplemental Schedule of Cash Flow Information:

     Income taxes paid ...............................   $  1,970,000    $  1,826,746
                                                         ============    ============


The accompanying notes are an integral part of the financial statements.

                                         16
</TABLE>
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 1. Nature of operations

Espey Mfg. & Electronics  Corp.  (the Company) is a  manufacturer  of electronic
equipment used primarily in military and industrial applications.  The principal
markets for the Company's products are companies that provide electronic support
to both military and industrial applications.

Note 2. Summary of Significant Accounting Policies

Inventory  Valuation,  Cost Estimation and Revenue Recognition Raw materials are
valued at weighted average cost.

Inventoried  work relating to contracts in process and work in process is valued
at actual production cost,  including factory overhead incurred to date. Work in
process  represents  spare units;  parts and other  inventory  items acquired or
produced to service units previously sold or to meet anticipated  future orders.
The cost  elements  of  contracts  in  process  and work in  process  consist of
production  costs of goods and  services  currently  in  process  and  overhead.
Provision  for losses on  contracts  is made when the  existence  of such losses
becomes probable and estimateable. The costs attributed to units delivered under
contracts  are based on the estimated  average cost of all units  expected to be
produced. Certain contracts are expected to extend beyond twelve months.

Revenue  is  recognized  on  contracts  in the  period  in which  the  units are
delivered and billed  (units-of-delivery  method). A significant  portion of our
business is  comprised  of  development  and  production  contracts.  Generally,
revenues on long-term  fixed-price  contracts  are  recorded on a percentage  of
completion  basis using units of delivery as the measurement  basis for progress
toward completion.

Percentage  of  completion  accounting  requires  judgment  relative to expected
sales,  estimating costs and making assumptions  related to technical issues and
delivery  schedules.  Contract costs include material,  subcontract costs, labor
and an allocation of overhead  costs.  The estimation of cost at completion of a
contract is subject to numerous variables involving contract costs and estimates
as to the length of time to complete the contract. Given the significance of the
estimation  processes  and  judgments  described  above,  it  is  possible  that
materially  different  amounts of contract  costs could be recorded if different
assumptions were used, based on changes in  circumstances,  in the estimation of
cost at  completion.  When a change in expected sales value or estimated cost is
determined, changes are reflected in current period earnings.

Depreciation
Depreciation  of plant and equipment is computed on a  straight-line  basis over
the estimated useful lives of the assets.

Estimated useful lives of depreciable assets are as follows:

         Buildings and improvements                    10 - 35 years
         Machinery and equipment                        3 - 25 years
         Furniture, fixtures and office equipment       5 - 10 years

Income Taxes
The  Company  follows  the  provisions  of  Statement  of  Financial  Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes."

Under the provisions of SFAS No. 109,  deferred tax assets and  liabilities  are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred taxes and  liabilities of a change in tax rates is recognized
in earnings in the period that  includes the enactment  date. In addition,  SFAS
No. 109 requires that the tax benefit of tax-deductible dividends on unallocated
ESOP shares be recorded as a direct addition to retained earnings rather than as
a reduction of income tax expense.

                                       17
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 2.  Summary of Significant Accounting Policies, Continued

Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks, certificates of deposit, and
money market accounts.  The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.

Short-term  investments include  certificates of deposit with maturities greater
than three months to a year.

Accounts receivable and allowance for doubtful accounts
The Company extends credit to its customers in the normal course of business and
collateral is generally not required for trade  receivables.  Exposure to credit
risk is  controlled  through  the use of credit  approvals,  credit  limits  and
monitoring procedures.  Accounts receivable are reported net of an allowance for
doubtful accounts.  The Company estimates the allowance based on its analysis of
specific balances, taking into consideration the age of the past due account and
anticipated  collections  resulting  from legal issues.  An account is generally
considered past due after thirty (30) days from the invoice date. Based on these
factors,  there was an  allowance  for  doubtful  accounts of $3,000 at June 30,
2008.  Changes to the allowance for doubtful accounts are charged to expense and
reduced by charge-offs, net of recoveries.

Per Share Amounts
SFAS 128  "Earnings  Per Share"  requires  the Company to  calculate  net income
(loss) per share  based on basic and  diluted  net income  (loss) per share,  as
defined.  Basic EPS  excludes  dilution  and is computed by dividing  net income
(loss) by the  weighted  average  number of shares  outstanding  for the period.
Diluted EPS reflects the  potential  dilution  that could occur if securities or
other  contracts to issue common stock were  exercised or converted  into common
stock.  The dilutive  effect of  outstanding  options  issued by the Company are
reflected in diluted EPS using the  treasury  stock  method.  Under the treasury
stock method,  options will only have a dilutive  effect when the average market
price of common  stock  during  the period  exceeds  the  exercise  price of the
options.

Comprehensive Income
Comprehensive  Income for the years ended June 30, 2008 and 2007 is equal to net
income.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amount of  assets  and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

Investment Tax Credits
Investment tax credits are accounted for as a reduction of income tax expense in
the year taxes payable are reduced.

Reclassifications
Certain  reclassifications  may  have  been  made to the  prior  year  financial
statements to conform to the current year presentation.

Recently Issued Accounting Standards
In May 2008, the FASB issued Statement of Financial  Accounting Standard No. 162
("SFAS 162"), The Hierarchy of Generally Accepted  Accounting  Principals.  SFAS
162  identifies  the sources of  accounting  principles  and the  framework  for
selecting the  principles  used in the  preparation  of financial  statements of
nongovernmental  entities  that  are  presented  in  conformity  with  generally
accepted  accounting  principles  (GAAP)  in  the  United  States.  SFAS  162 is
effective 60 days following the SEC's approval of the Public Company  Accounting
Oversight  Board  amendments to AU Section 411, The Meaning of Present Fairly in
Conformity  With  Generally  Accepted  Accounting  Principles.  The  Company  is
currently evaluating the impact of SFAS 162 on its financial statements but does
not expect it to have a material effect.

                                       18
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 2.  Summary of Significant Accounting Policies, Continued

In February 2007, the FASB issued Statement of Financial Accounting Standard No.
159 ("SFAS  159"),  The Fair Value  Option for  Financial  Assets and  Financial
Liabilities.  SFAS 159  provides  companies  with an option  to report  selected
financial assets and financial  liabilities at fair value.  Unrealized gains and
losses on items for which the fair value option has been elected are reported in
earnings at each subsequent reporting date. SFAS 159 is effective beginning July
1, 2008.  The adoption of the  provisions  of SFAS 159 is not expected to have a
material effect on the Company's Financial Statements.

In July 2006, the FASB issued  Interpretation No. 48 ("FIN 48"),  Accounting for
Uncertainty in Income Taxes-An  Interpretation  of FASB Statement No. 109, which
prescribes a recognition  threshold and measurement  attribute for the financial
statement  recognition and measurement of a tax position taken or expected to be
taken in a tax return. In particular, this interpretation requires uncertain tax
positions to be recognized only if they are  "more-likely-than-not" to be upheld
based  on their  technical  merits.  Additionally,  the  measurement  of the tax
position will be based on the largest  amount that is determined to have greater
than a 50% likelihood of  realization  upon ultimate  settlement.  Any resulting
cumulative  effect of applying the  provisions of FIN 48 upon adoption  would be
reported as an adjustment to the beginning  balance of retained  earnings in the
period of adoption. FIN 48 was effective beginning July 1, 2007. The adoption of
FIN 48 did not have a material effect on the Company's financial statements.

In September 2006, the FASB issued  Statement of Financial  Accounting  Standard
No. 157 ("SFAS  157"),  Fair Value  Measurements.  SFAS 157 defines  fair value,
establishes a framework for measuring fair value, and expands  disclosures about
fair value  measurements.  SFAS 157 applies to other  accounting  pronouncements
that  require or permit  fair value  measurements,  but does not require any new
fair value measurements.  SFAS 157 is effective for financial  statements issued
for fiscal years  beginning  after November 15, 2007, and interim periods within
those  years.  The Company is  currently  evaluating  the effect of the guidance
contained in SFAS 157 and does not expect the  implementation to have a material
effect on the Company's financial statements.

Impairment of Long-Lived Assets
Long-lived assets,  including property,  plant, and equipment,  are reviewed for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable.  Recoverability of assets to
be held and used is measured by a comparison of the carrying  amount of an asset
to  estimated  undiscounted  future cash flows  expected to be  generated by the
asset.  If the carrying  amount of an asset  exceeds its  estimated  future cash
flows,  an  impairment  charge is recognized by the amount by which the carrying
amount of the asset  exceeds the fair value of the asset.  Assets to be disposed
of are  separately  presented in the balance  sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and no longer depreciated.
The assets and  liabilities of a disposed group  classified as held for sale are
presented  separately in the  appropriate  asset and  liability  sections of the
balance sheet

Concentrations of Risk
The market for our  defense  electronics  products is largely  dependent  on the
availability of new contracts from the United States and foreign  governments to
prime contractors to which we provide components. Any decline in expenditures by
the United  States or  foreign  governments  may have an  adverse  effect on our
financial performance.

Generally,  U.S.  government  contracts  are  subject  to  procurement  laws and
regulations.  Some  of the  Company's  contracts  are  governed  by the  Federal
Acquisition Regulation (FAR), which lays out uniform policies and procedures for
acquiring  goods  and  services  by the  U.S.  government,  and  agency-specific
acquisition  regulations that implement or supplement the FAR. For example,  the
Department of Defense implements the FAR through the Defense Federal Acquisition
Regulation (DFAR).

The FAR also contains  guidelines and  regulations for managing a contract after
award, including conditions under which contracts may be terminated, in whole or
in part,  at the  government's  convenience  or for  default.  If a contract  is
terminated for the  convenience of the  government,  a contractor is entitled to
receive  payments for its  allowable  costs and, in general,  the  proportionate
share of fees or earnings  for the work done.  If a contract is  terminated  for
default, the government generally pays for only the work it has accepted.  These
regulations  also subject the Company to financial  audits and other  reviews by
the  government  of its costs,  performance,  accounting  and  general  business
practices  relating  to its  contracts,  which may result in  adjustment  of the
Company's contract-related costs and fees.

                                       19
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 3. Contracts in Process

Contracts in process at June 30, 2008 and 2007 are as follows:

                                                           2008          2007
                                                           ----          ----

         Gross contract value                          $44,784,584   $36,265,636

         Costs related to contracts in process, net
         of progress payments of $959,175 in fiscal
         2008  and $206,238 in fiscal 2007             $ 7,461,786   $ 7,255,422

Included in costs relating to contracts in process at June 30, 2008 and 2007 are
costs of $1,911,986 and $865,097,  respectively,  relative to contracts that may
not be completed  within the ensuing year. Under the  units-of-delivery  method,
the related  sale and cost of sales will not be  reflected  in the  statement of
income until the units under contract are shipped.

Note 4. Property, Plant and Equipment

A summary of the original cost of property, plant and equipment at June 30, 2008
and 2007 is as follows:

                                                        2008           2007
                                                        ----           ----
         Land                                      $     45,000    $     45,000
         Building and improvements                    4,639,626       4,478,437
         Machinery and equipment                      6,706,541       6,528,069
         Furniture, fixtures and office equipment       156,884         143,221
                                                   ------------    ------------
                                                     11,548,050      11,194,727
         Accumulated depreciation                    (8,591,460)     (8,260,217)
                                                   ------------    ------------
                                                   $  2,956,590    $  2,934,510
                                                   ============    ============

Depreciation expense was $491,526 and $504,243,  during the years ended June 30,
2008 and 2007, respectively.

Note 5. Line of credit

Management had available a $3,000,000 line of credit to help fund further growth
or working capital needs, but did not anticipate the need for any borrowed funds
in the  foreseeable  future and therefore did not renew the line of credit which
expired November 30, 2007.

Note 6. Pension Expense

Under terms of a  negotiated  union  contract,  the Company is obligated to make
contributions  to  a  union-sponsored  defined  benefit  pension  plan  covering
eligible employees.  Such contributions and expenses are based upon hours worked
at a specified rate and amounted to $87,159 in fiscal 2008 and $94,890 in fiscal
2007.

The  Company  sponsors  a  401(k)  plan  with  employee  and  employer  matching
contributions.  The employer match is 10% of the employee  contribution  and was
$30,125 and $32,262, for fiscal years 2008 and 2007, respectively.

Note 7. Provision for Income Taxes

A summary of the  components  of the  provision  for income  taxes for the years
ended June 30, 2008 and 2007 is as follows:

                                              2008           2007
                                              ----           ----
         Current tax expense - federal    $ 1,561,918    $ 1,282,953
         Current tax expense - state            5,909        139,265
         Deferred tax (benefit) expense       (38,511)       (60,448)
                                          -----------    -----------
                                          $ 1,529,316    $ 1,361,770
                                          ===========    ===========

Deferred income taxes reflect the impact of "temporary  differences" between the
amount of assets and  liabilities  for  financial  reporting  purposes  and such
amounts measured by tax laws and regulations.  These "temporary differences" are
determined in accordance with SFAS No. 109.

                                       20
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 7. Provision for Income Taxes, Continued

The  combined  U.S.  federal and state  effective  income tax rates of 30.9% and
34.9%, for 2008 and 2007 respectively,  differed from the statutory U.S. federal
income tax rate for the following reasons:

                                                                 2008     2007
                                                                ------   ------
         U.S. federal statutory income tax rate                   34.0%    34.0%
         Increase (reduction) in rate resulting from:
             State franchise tax, net of federal income tax
              benefit                                              0.1      2.4
             Foreign exportation benefit                            --     (0.2)
             ESOP cost versus Fair Market Value                    1.1      1.0
             Dividend on allocated ESOP shares                    (1.6)    (1.2)
             Qualified Production Activities                      (2.0)    (1.0)
             Stock-based compensation                             (0.7)     0.4
             Other                                                  --     (0.5)
                                                                ------   ------
         Effective tax rate                                       30.9%    34.9%
                                                                ======   ======

For the years  ended  June 30,  2008 and 2007  deferred  income  tax  benefit of
$(38,511)  and  $(60,448),  respectively,  result from the changes in  temporary
differences  for each year. The tax effects of temporary  differences  that give
rise to deferred tax assets and deferred tax liabilities as of June 30, 2008 and
2007 are presented as follows:

<TABLE>
<CAPTION>
                                                                 2008          2007
                                                                 ----          ----
<S>                                                               <C>          <C>
         Deferred tax assets:
             Accrued expenses ..............................   $ 126,808    $ 159,204
             ESOP ..........................................      77,987       56,323
             Stock-based compensation ......................       6,775        4,850
             Inventory - effect on uniform capitalization ..      26,699           --
             Other .........................................       9,572       13,612
                                                               ---------    ---------
                           Total deferred tax assets .......     247,841      233,989
                                                               ---------    ---------

         Deferred tax liabilities:
             Property, plant and equipment - principally due
                  to differences in depreciation methods ...     210,564      235,224
                                                               ---------    ---------
                           Total deferred tax liabilities ..     210,564      235,223
                                                               ---------    ---------
         Net deferred tax liability ........................   $ (37,277)   $   1,235
                                                               =========    =========
</TABLE>

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will be  realized.  The  ultimate  realization  of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those temporary  differences become deductible.  Management  considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning  strategies in making this assessment.  Based upon the level of
historical  taxable  income and  projection  for future  taxable income over the
period in which the deferred tax assets are deductible,  management  believes it
is more  likely  than not that the Company  will  realize the  benefits of these
temporary differences without consideration of a valuation allowance.

As the  result of the  implementation  of the FASB  interpretation  No. 48 ("FIN
48"),  Accounting for  Uncertainty in Income Taxes - An  Interpretation  of FASB
Statement  No.  109,  the  Company   recognized  no  material   adjustments   to
unrecognized tax benefits.  At the adoption date of July 1, 2007, and as of June
30, 2008, the Company has no unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax positions
in general and administrative  expense. As of June 30, 2008, the Company has not
recorded any provision for accrued  interest and penalties  related to uncertain
tax positions.

By statute,  tax years ending June 30, 2006 and 2007 remain open to  examination
by the major taxing jurisdictions to which the Company is subject.

                                       21
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 8. Significant Customers

A significant  portion of the Company's  business is the  production of military
and industrial  electronic equipment for use by the U.S. and foreign governments
and certain industrial customers.  Sales to two domestic customers accounted for
31% and 25% of total  sales in  fiscal  2008.  Sales to two  domestic  customers
accounted for 30% and 29% of total sales in fiscal 2007.

Export sales in fiscal 2008 and fiscal 2007 were  approximately  $5,538,000  and
$3,747,000, respectively.

Note 9. Stock Rights Plan

The Company has a  Shareholder  Rights Plan that  expires on December  31, 2009.
Under this plan,  common stock purchase rights were distributed as a dividend at
the rate of one right for each share of common stock outstanding as of or issued
subsequent  to April 14, 1989.  Each right  entitles  the holder  thereof to buy
one-half  share of common  stock of the Company at an exercise  price of $25 per
share  subject to  adjustment.  The rights are  exercisable  only if a person or
group acquires beneficial ownership of 15% or more of the Company's common stock
or commences a tender or exchange offer which, if  consummated,  would result in
the  offeror  individually  or,  together  with all  affiliates  and  associates
thereof,  being  the  beneficial  owner of 15% or more of the  Company's  common
stock.

If  a  15%  or  larger  shareholder   should  engage  in  certain   self-dealing
transactions  or a merger with the Company in which the Company is the surviving
corporation  and its shares of common  stock are not changed or  converted  into
equity  securities  of any other  person,  or if any  person  were to become the
beneficial owner of 15% or more of the Company's  common stock,  then each right
not owned by such  shareholder or related  parties of such  shareholder  (all of
which will be void) will  entitle its holder to  purchase,  at the right's  then
current  exercise price,  shares of the Company's common stock having a value of
twice the right's exercise price. In addition, if the Company is involved in any
other  merger  or  consolidation  with,  or sells  50% or more of its  assets or
earning power to another person, each right will entitle its holder to purchase,
at the right's then current exercise price, shares of common stock of such other
person having a value of twice the right's exercise price.

The Company  generally is entitled to redeem the rights at one cent per right at
any time until the 15th day (or 25th day if extended by the  Company's  Board of
Directors)  following public  announcement that a 15% position has been acquired
or the  commencement of a tender or exchange offer which, if consummated,  would
result in the offer or,  together with all affiliates  and  associates  thereof,
being the beneficial owner of 15% or more of the Company's common stock.

Note 10. Employee Stock Ownership Plan

The Company sponsors a leveraged employee stock ownership plan (the "ESOP") that
covers  all  nonunion  employees  who work  1,000 or more hours per year and are
employed on June 30. Prior to July 15, 2005, the ESOP owned 230,120 shares,  all
of which were  allocated to  employees.  On July 15,  2005,  pursuant to a Stock
Purchase Agreement dated as of such date, the Company, by selling 150,000 shares
of its  common  stock,  par value  $0.33-1/3  per  share,  to the Espey  Mfg.  &
Electronics Corp.  Employee Stock Ownership Plan Trust,  provided more shares to
be allocated to employees for services rendered over the next 15 years. The ESOP
paid  $28.90 per share,  for an  aggregate  purchase  price of  $4,335,000.  The
determination  of the purchase price was based on a fairness opinion obtained by
an independent  valuation firm. The ESOP borrowed from the Corporation an amount
equal to the  purchase  price.  The loan will be repaid in  fifteen  (15)  equal
annual  installments of principal and the unpaid balance will bear interest at a
fixed rate of 6.25% per annum,  the  "prime  rate" as quoted in The Wall  Street
Journal on the date of closing. The above ESOP information has not been adjusted
for the stock split completed December 30, 2005.

The Board of Directors  of the Company had  approved a purchase  price per share
equal to a 5% discount  on the average  trading  price of the  Company's  common
stock on the American Stock Exchange on the date before closing, but in no event
greater than the fair market value as  determined  by an  independent  valuation
firm retained by the ESOP.  The average  trading  price of the Company's  common
stock on the American Stock Exchange on July 14, 2005 was $30.72.

                                       22
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 10. Employee Stock Ownership Plan, Continued

In making the sale, the Company relied on the exemption from registration  under
Section 4(2) of the Securities Act of 1933, as amended,  because the shares sold
were offered only to the ESOP.

After giving effect to the  transaction,  the ESOP owned  380,120  shares of the
Company's 1,158,294 outstanding shares of common stock as of July 15, 2005.

The  Company  makes  annual  contributions  to the ESOP equal to the ESOP's debt
service less dividends on unallocated shares received by the ESOP. All dividends
on  unallocated  shares  received  by the ESOP  are  used to pay  debt  service.
Dividends  on  allocated  ESOP shares are  recorded  as a reduction  of retained
earnings.  As the debt is repaid,  shares are released  and  allocated to active
employees, based on the proportion of debt service paid in the year. The Company
accounts  for  its  ESOP  in  accordance   with   Statement  of  Position  93-6.
Accordingly,  the shares  purchased  by the ESOP are  reported as Unearned  ESOP
Shares in the  statement  of  financial  position.  As shares  are  released  or
committed-to-be-released,  the Company reports compensation expense equal to the
current  average market price of the shares,  and the shares become  outstanding
for  earnings-per-share  (EPS)  computations.   ESOP  compensation  expense  was
$507,805 for the year ended June 30,  2008.  The ESOP shares as of June 30, 2008
were as follows:

         Allocated Shares                                      442,243
         Committed-to-be-released shares                            --
         Unreleased shares                                     225,000
                                                            ----------

         Total shares held by the ESOP                         667,243
                                                            ==========

         Fair value of unreleased shares at June 30, 2008   $4,272,750
                                                            ==========

Note 11. Stock-based Compensation

Effective July 1, 2006, the Company  adopted  Statement of Financial  Accounting
Standards  No. 123 (Revised  2004),"Share-Based  Payment"  ("SFAS No. 123 (R)"),
which amends SFAS No. 123 and  supersedes  Accounting  Principles  Board Opinion
("APB") No. 25 in establishing  standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services,  as well
as transactions  in which an entity incurs  liabilities in exchange for goods or
services that are based on the fair value of the entity's equity  instruments or
that maybe settled by the issuance of those equity instruments.  SFAS No. 123(R)
requires that the cost resulting from all  share-based  payment  transactions be
recognized  in  the  financial  statements  based  on  the  fair  value  of  the
share-based  payment.  SFAS No.123(R)  establishes fair value as the measurement
objective in accounting for  share-based  payment  transactions  with employees,
except for equity instruments held by employee share ownership plans. As allowed
under SFAS No. 123(R),  the Company elected the modified  prospective  method of
adoption,   under  which  compensation  cost  is  recognized  in  the  financial
statements  beginning  with  the  effective  date of  SFAS  No.  123(R)  for all
share-based  payments  granted  after that  date,  and for all  unvested  awards
granted  prior to the  effective  date of SFAS No.  123(R).  Accordingly,  prior
period amounts have not been restated.

Total stock-based compensation expense recognized in the Statement of Income for
the fiscal  years  ended June 30,  2008 and 2007,  was  $143,530  and  $170,698,
respectively,  before income taxes.  The related total  deferred tax benefit was
approximately  $11,239 and $13,480, for the same periods.  Prior to the adoption
of SFAS No.  123(R),  the Company  presented  all tax  benefits  for  deductions
resulting  from the  exercise of stock  options as  operating  cash flows in the
Statements of Cash Flows.  SFAS No. 123(R)  requires the tax benefits  resulting
from tax  deductions in excess of the  compensation  cost  recognized  for those
options to be  classified  and reported as both an operating  cash outflow and a
financing cash inflow on a prospective basis upon adoption.

As  of  June  30,  2008,  there  was  approximately   $148,068  of  unrecognized
compensation  cost  related  to  stock  option  awards  that is  expected  to be
recognized  as expense  over the next 2 years.  The total  deferred  tax benefit
related to these awards is approximately $13,099.

                                       23
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 11. Stock-based Compensation, Continued

The  Company has one  employee  stock  option  plan under  which  options may be
granted,  the 2007 Stock Option and Restricted Stock Plan (the "2007 Plan"). The
Board of  Directors  may grant  options  to  acquire  shares of common  stock to
employees  of the  Company at the fair market  value of the common  stock on the
date of grant.  Generally,  options granted have a two-year vesting period based
on two years of continuous service and have a ten-year  contractual life. Option
grants provide for accelerated  vesting if there is a change in control.  Shares
issued upon the  exercise of options are from those held in  Treasury.  The 2007
Plan was approved by the Company's  shareholders at the Company's Annual Meeting
on November 30, 2007 and  supercedes  the Company's  2000 Stock Option Plan (the
"2000 Plan").  Options covering 400,000 shares are authorized for issuance under
the 2007  Plan.  While no further  grants of options  may be made under the 2000
Plan, as of June 30, 2008,  126,500 options were outstanding of which 58,100 are
vested and  exercisable.  Options  available  for future grants at June 30, 2008
total 365,600.

SFAS No.  123(R)  requires the use of a valuation  model to  calculate  the fair
value of stock-based  awards.  The Company has elected to use the  Black-Scholes
option valuation model, which incorporates  various assumptions  including those
for volatility, expected life and interest rates.

The table below outlines the weighted average  assumptions that the Company used
to  calculate  the fair value of each option  award for the years ended June 30,
2008 and 2007, respectively:

                                                        2008          2007
                                                     -----------   ----------
         Dividend yield                                 3.0%          3.0%
         Expected stock price volatility               27.03%        22.03%
         Risk-free interest rate                        3.12%         4.63%
         Expected option life (in years)                4.0 years     4.0 years
         Weighted average fair value per share
            of options granted during the period       $3.934        $3.284

The Company pays  dividends  quarterly and  anticipates  that it will be able to
continue  to pay  dividends  in the  foreseeable  future.  Expected  stock price
volatility is based on the  historical  volatility of the Company's  stock.  The
risk-free interest rate is based on the implied yield available on U.S. Treasury
issues with an equivalent term  approximating  the expected life of the options.
The expected  option life (in years)  represents  the  estimated  period of time
until exercise and is based on actual historical experience.

The following table  summarizes stock option activity during the year ended June
30, 2008:

                                               Employee Stock Options Plan
                                          --------------------------------------
                                                                      Weighted
                                           Number of     Weighted      Average
                                            Shares        Average     Remaining
                                            Subject      Exercise    Contractual
                                           To Options      Price        Term
                                          --------------------------------------
         Balance at July 1, 2007            138,800        $15.77        7.14
         Granted                             34,400        $21.54        9.89
         Exercised                          (45,100)       $12.70          --
         Forfeited or expired                (1,600)       $18.05          --
                                          --------------------------------------
         Balance at June 30, 2008           126,500        $18.40        8.36
                                          ======================================
         Exercisable at June 30, 2008        58,100        $16.61        7.28
                                          ======================================

The intrinsic value of stock options  exercised was $256,533,  during the twelve
months ended June 30, 2008. The intrinsic value of stock options  outstanding as
of June 30, 2008 was $162,099.  The intrinsic value of stock options exercisable
as of June 30, 2008 was $138,299.

Note 12. Financial Instruments/Concentration of Credit Risk

The  carrying  amounts  of  financial  instruments,   including  cash  and  cash
equivalents, short term investments,  accounts receivable,  accounts payable and
accrued  expenses,  approximated fair value as of June 30, 2008 and 2007 because
of the relatively short maturities of these instruments.

                                       24
<PAGE>

Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 12. Financial Instruments/Concentration of Credit Risk, Continued

Financial  instruments that potentially subject the Company to concentrations of
credit  risk  consist  principally  of cash  and  cash  equivalents,  short-term
investments  and  accounts  receivable.  The  Company  maintains  cash  and cash
equivalents with various financial  institutions.  At times such investments may
be in excess of FDIC  insurance  limits.  As disclosed in note 8, a  significant
portion of the Company's  business is the  production of military and industrial
electronic  equipment  for use by the U.S. and foreign  governments  and certain
industrial  customers.  The related accounts receivable balance of the Company's
total trade accounts receivable  balance,  represented at June 30, 2008 by three
customers was 56.8%, and 51% by three customers at June 30, 2007.

Although the Company's  exposure to credit risk  associated  with  nonpayment of
these balances is affected by the conditions or occurrences  within the U.S. and
foreign  governments,  the Company  believes that its trade accounts  receivable
credit risk exposure is limited. The Company performs ongoing credit evaluations
of its customer's financial conditions and requires collateral, such as progress
payments,  in certain  circumstances.  The Company  establishes an allowance for
doubtful  accounts  based upon factors  surrounding  the credit risk of specific
customers, historical trends and other information.

Note 13. Related Parties

The  administration  of the  shares of common  stock  held by the ESOP  Trust is
subject to the Second Amended and Restated  Plan,  effective as of July 1, 2002,
creating the Trust,  and a Trust  Agreement  dated July 15, 2005.  The Trustees'
rights with  respect to the  disposition  of shares are governed by the terms of
the Plan and the Trust  Agreement.  As to shares that have been allocated to the
accounts of participants in the ESOP Trust,  the Plan provides that the Trustees
are required to vote such shares in accordance with  instructions  received from
the participants. As to unallocated shares and allocated shares for which voting
instructions  have not been received from  participants,  the Plan provides that
the Trustees are required to vote such shares in  accordance  with the direction
of a Committee,  appointed  by the Board of  Directors of the Company  under the
terms of the Plan and Trust  Agreement.  See note 10 for additional  information
regarding the ESOP.

Note 14. Commitments and Contingencies

The Company at certain  times enters into standby  letters of credit  agreements
with  financial  institutions  primarily  relating  to the  guarantee  of future
performance on certain contracts.  Contingent liabilities on outstanding standby
letters of credit agreements aggregated to zero at June 30, 2008.

Note 15. Stockholders' Equity

Reservation of Shares
The Company has reserved common shares for future issuance as follows as of June
30, 2008:

         Stock options outstanding                     126,500
         Stock options available for issuance          365,600
                                                       -------
         Number of common shares reserved              492,100
                                                       =======

The  following  table  sets  for  the   reconciliation  of  the  numerators  and
denominators  of the basic and diluted  per share  computations  for  continuing
operations for the years ended June 30:

                                       25

<PAGE>
Espey Mfg. & Electronics Corp.
Notes to Financial Statements
--------------------------------------------------------------------------------

Note 15. Stockholders' Equity, Continued

<TABLE>
<CAPTION>
                                                                                     2008          2007
                                                                                     ----          ----
<S>                                                                                 <C>           <C>
         Numerator:
         Net Income                                                              $ 3,421,869   $ 2,544,720
                                                                                 ===========   ===========

         Denominator:
         Basic EPS:
              Common shares outstanding, beginning of period                       2,316,893     2,304,562
              Unearned ESOP shares                                                  (249,167)     (274,167)
              Weighted average common shares issued during the period                 24,026        15,541
              Weighted average common shares purchased during the period             (21,114)       (6,711)
              Weighted average ESOP shares earned during the period                    9,096         9,401
              Denominator for basic earnings per common shares -
                                                                                 -----------   -----------
                  Weighted average common shares                                   2,079,734     2,048,626
                                                                                 ===========   ===========

         Diluted EPS:
              Common shares outstanding, beginning of period                       2,316,893     2,304,562
              Unearned ESOP shares                                                  (249,167)     (274,167)
              Weighted average common shares issued during the period                 24,026        15,541
              Weighted average common shares purchased during the period             (21,114)       (6,711)
              Weighted average ESOP shares earned during the period                    9,096         9,401
              Weighted average dilutive effect of issued or forfeited shares          24,102        29,038
              Denominator for diluted earnings per common shares -
                                                                                 -----------   -----------
                  Weighted average common shares                                   2,103,836     2,077,664
                                                                                 ===========   ===========
</TABLE>

Not included in this  computation  of earnings per share for the year ended June
30, 2008 were options to purchase  34,400 of the Company's  common stock.  These
items were excluded because their inclusion would have been anti-dilutive due to
the average strike price exceeding the average market price of those shares.

Note 16. Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                               First       Second        Third       Fourth
                                             Quarter      Quarter      Quarter      Quarter
                                          ----------   ----------   ----------   ----------
<S>                                       <C>          <C>          <C>          <C>
              2008
               Net Sales................  $6,301,786   $6,732,144   $6,479,020   $6,188,789
                  Gross profit .........   1,349,110    1,682,585    2,177,431    1,653,120
                  Net income............     591,583      797,086    1,199,205      833,995

              Net income per share -
               Basic....................         .29          .38          .53          .45
               Diluted..................         .28          .37          .53          .45

              2007
               Net Sales................  $6,071,906   $6,119,320   $8,059,695   $7,405,438
                  Gross profit .........   1,397,308    1,258,221    1,616,134    1,788,304
                  Net income............     543,050      479,911      714,030      807,729

              Net income per share -
               Basic....................         .27          .23          .35          .39
               Diluted..................         .26          .23          .34          .39
</TABLE>

                                       26
<PAGE>

Item 8.  Changes   in and  disagreements  with  accountants  on  accounting  and
         financial disclosure

         None

Item 8A(T). Controls and Procedures

Disclosure Controls and Procedures

(a) The Company's  management,  with the  participation  of the Company's  chief
executive officer and chief financial officer,  carried out an evaluation of the
effectiveness  of our  disclosure  controls and  procedures  (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end
of the  period  covered  by this  Annual  Report on Form  10-KSB.  Based on such
evaluation,  our chief  executive  officer  and  chief  financial  officer  have
concluded that our disclosure  controls and procedures  were effective as of the
end of the period covered by this report.

(b) There have been no changes in our internal controls over financial reporting
during the period covered by this report that have materially  affected,  or are
reasonably  likely to materially  affect,  our internal  controls over financial
reporting.

Management's Report on Internal Control Over Financial Reporting

Management  of our  Company is  responsible  for  establishing  and  maintaining
adequate internal control over financial  reporting,  as that term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f).  Our internal control over financial
reporting is a process designed to provide  reasonable  assurance  regarding the
reliability of financial  reporting and the preparation of financial  statements
for  external  purposes  in  accordance  with  generally   accepted   accounting
principles.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

Under the supervision and with the  participation  of our management,  including
the principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
using the criteria set forth in Internal Control-Integrated  Framework issued by
the Committee of Sponsoring  Organizations of the Treadway Commission.  Based on
our  evaluation  using the  criteria  set forth in  Internal  Control-Integrated
Framework,  management  has concluded  that our internal  control over financial
reporting was effective as of June 30, 2008.

This  annual  report does not include an  attestation  report of our  registered
public accounting firm regarding internal control over financial reporting.  Our
report was not subject to attestation by our registered  public  accounting firm
pursuant  to  temporary  rules  of  the  SEC  that  permit  us to  provide  only
management's report in this annual report.

Item 8B. Other information

         None

                                       27
<PAGE>

                                    PART III

The information called for by "Item 9. Directors,  Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a) of the Registrant", "Item 10.
Executive  Compensation",  "Item 11.  Security  Ownership of Certain  Beneficial
Owners and  Management  and  Related  Stockholder  Matters",  "Item 12.  Certain
Relationships and Related  Transactions" and "Item 14. Principal Accountant Fees
and  Services",  is hereby  incorporated  by  reference to the  Company's  Proxy
Statement  for its Annual  Meeting  of  Shareholders,  (scheduled  to be held on
November 30, 2007) to be filed with the SEC pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.

Item 13.  Exhibits

          3.1       Certificate  of  incorporation  and all  amendments  thereto
                    (incorporated  by reference to Exhibit 3.1 to Espey's Report
                    on Form 10-K for the year ended June 30,  2004 and Report on
                    Form 10-Q for the quarter ended December 31, 2004)

          3.2       By-laws (incorporated by reference to Exhibit 3.2 to Espey's
                    Report on Form 10-Q for the quarter ended March 31, 2004)

          4.1       Amended and Restated Rights Agreement, dated March 31, 1989,
                    as amended February 12, 1999 and December 31, 1999,  between
                    Espey Mfg. &  Electronics  Corp.  and Registrar and Transfer
                    Company (incorporated by reference to Espey's Form 8-K dated
                    December 20, 1999)

          4.2       Description of Capital Stock  (incorporated  by reference to
                    Espey's Report on Form 8-K dated October 7, 2005)

          10.1      2000 Stock Option Plan (incorporated by reference to Espey's
                    Definitive  Proxy  Statement  dated December 6, 1999 for the
                    January 4, 2000 Annual Meeting)

          10.2      Executive  Officer  contract  (incorporated  by reference to
                    Espey's Report on Form 10-KSB dated September 5, 2007)

          10.3      2007 Stock Option and Restricted Stock Plan (incorporated by
                    reference to Espey's Proxy  Statement dated October 23, 2007
                    for the November 30, 2007 Annual Meeting)

          11.1      Statement  re:  Computation  of Per Share Net income  (filed
                    herewith)

          14.1      Code of ethics (incorporated by reference to Espey's website
                    www.espey.com)
                    -------------

          23.1      Consent of Rotenberg & Co., LLP (filed herewith)

          31.1      Certification  of the Chief  Executive  Officer  pursuant to
                    Rules 13a-14(a) and 15d-14(a) under the Securities  Exchange
                    Act of 1934,  as  adopted  pursuant  to  Section  302 of the
                    Sarbanes-Oxley Act of 2002 (filed herewith)

          31.2      Certification of the Principal Financial Officer pursuant to
                    Rules 13a-14(a) and 15d-14(a) under the Securities  Exchange
                    Act of 1934,  as  adopted  pursuant  to  Section  302 of the
                    Sarbanes-Oxley Act of 2002 (filed herewith)

          32.1      Certification of the Chief Executive  Officer pursuant to 18
                    U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002 (filed herewith)

          32.2      Certification of the Principal Financial Officer pursuant to
                    18 U.S.C.  Section 1350, as adopted  pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002 (filed herewith)


                                       28
<PAGE>

                               S I G N A T U R E S


Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                                ESPEY MFG. & ELECTRONICS CORP.


                                                /s/Howard Pinsley
                                                ------------------------------
                                                Howard Pinsley
                                                President and
                                                Chief Executive Officer


/s/Howard Pinsley                               President
---------------------------                     (Chief Executive Officer)
Howard Pinsley                                  September 8, 2008

/s/David O'Neil                                 Treasurer
---------------------------                     (Principal Financial Officer)
David O'Neil                                    September 8, 2008

/s/Katrina Sparano                              Assistant Treasurer
---------------------------                     (Principal Accounting Officer)
Katrina Sparano                                 September 8, 2008

/s/Barry Pinsley                                Director
---------------------------                     September 8, 2008
Barry Pinsley

/s/Seymour Saslow                               Director
---------------------------                     September 8, 2008
Seymour Saslow

/s/Michael W. Wool                              Director
---------------------------                     September 8, 2008
Michael W. Wool

/s/Paul J. Corr                                 Director
---------------------------                     September 8, 2008
Paul J. Corr

/s/Alvin O. Sabo                                Director
---------------------------                     September 8, 2008
Alvin O. Sabo

/s/Carl Helmetag                                Director
---------------------------                     September 8, 2008
Carl Helmetag


                                       29